Market cycles tend to constantly throw challenges at investors. When markets are at cyclical highs, it is extremely difficult to sell and exit. When markets trade near cyclical lows, taking a bold investment call is near impossible. When the markets trade on an uptrend, we tend to keep buying more as the trend grows to its strongest point. Most buying happens around the strongest point and buying momentum refuses to slow down for a while.

What we have seen in early 2018 typified this behaviour. As we are seeing now, the trend slowly changes or breaks down, but investment behaviour refuses to change or adapt as quickly. When the trend breaks down completely, we usually struggle to adopt newer strategies. Our liquidity may be low and the scope to reorient portfolios is also minimal.

The sensible approach would be to gradually reorient portfolios as the trade turns. The markets will give enough time and there would be enough liquidity to buy as well. When extreme lows are hit, the exercise would be near complete and the portfolio will be forward-looking. Investing strategies need to change towards the future and gradually align portfolios with the emerging scenario. This can work well only with a graded approach.

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